Intel targets ARM with $7.7 billion purchase of McAfee

In its growing effort to get its chips into smart phones and other smaller connected devices, Intel has announced it is buying security software maker McAfee for $7.68 billion.

This is the largest acquisition by Intel and signals its intent to weave security into its chips, which it hopes will power a much wider array of devices than just PCs and servers. It’s a big bet valuing McAfee at $48 a share, a 60 percent premium over its closing price yesterday.

McAfee calls itself the world’s largest dedicated security technology company with approximately $2 billion in revenue in 2009 and 6,100 employees.

Intel said the deal is critical to face the current state of online security. It said today’s security approach is not adequate to handle the billions of connected devices coming, from mobile phones to TVs, cars and medical devices. It takes a combined approach between hardware, software and services.

“With the rapid expansion of growth across a vast array of Internet-connected devices, more and more of the elements of our lives have moved online,” said Paul Otellini, Intel president and CEO. “In the past, energy-efficient performance and connectivity have defined computing requirements. Looking forward, security will join those as a third pillar of what people demand from all computing experiences.”

It sounds like Intel is targeting ARM Holdings, the chip designer whose technology is used in billions of devices and is the standard for mobile phones and gadgets. ARM is known for making battery-sipping processors, something Intel, even with its latest Atom chips, struggles to compete with.

Intel seems to be suggesting that depending on ARM designs may not be a good idea if security becomes an issue. It’s not really a huge concern now but Intel is trying to get out ahead of it. Or maybe, it’s creating a market by hyping the issue. Either way, by covering the “third pillar”, it’s giving the company a way to differentiate its chips against ARM processors.

At any rate, this is will allow Intel, which already includes some security in its chips, to enhance that with McAfee software on top. It will be a more complete system, rather than just a discrete chip.

Now whether Intel can make this work is another matter. It’s not known for software or generally making its acquisitions work well. And in the mobile space, added security won’t necessarily provide a boost if the chips are still not efficient enough.

But with connected devices expected to skyrocket in the coming years to some 50 billion in the next decade, this may eventually pay off for Intel. We’ll just have to see.